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Do FDI inflows affect the off-balance sheet activities of banks in GCC economies?

Abdulazeez Y.H. Saif-Alyousfi (Department of Finance, College of Business Administration, University of Hafr Al-Batin, Hafr Al Batin, Saudi Arabia) (Department of Finance and Banking, Faculty of Administrative Sciences, Taiz University, Taiz, Yemen)

China Finance Review International

ISSN: 2044-1398

Article publication date: 27 July 2020

Issue publication date: 27 April 2021

185

Abstract

Purpose

This paper investigates and compares the impact of foreign direct investment (FDI) inflows (flow and stock) on bank off-balance sheet (OBS) activities in aggregate as well as at the level of conventional and Islamic banks in GCC countries. It also tests hypotheses of direct and indirect impacts of FDI flow and FDI stock on OBS activities.

Design/methodology/approach

This paper uses both static and dynamic panel generalized methods of moments (GMM) estimation techniques to analyze the data of 70 GCC banks (45 conventional and 25 Islamic banks) over the period 1995–2017.

Findings

Empirical results indicate that FDI flow and FDI stock have a significant negative direct impact on OBS activities of GCC banks. The results lend support for the direct channel hypothesis for the effect of FDI on OBS activities and find no evidence in support of the indirect channel hypothesis. OBS activities from conventional banks appear to be more affected than those from Islamic banks.

Practical implications

The results of this study are expected to trigger appropriate policy response from the central banks of the respective GCC countries as well as their governments.

Originality/value

It is widely recognized that FDI inflows are of great importance to the economic development of emerging and developing countries. However, their impact on bank OBS activities has so far not been subject to accurate empirical assessment. This paper aims to fill this gap by providing an in-depth quantitative analysis of the impact of FDI flow and FDI stock separately, on bank OBS activities for both conventional and Islamic banks in GCC countries. It distinguishes between direct and indirect channels through which FDI flow and FDI stock may affect OBS activities for banks as a whole and both conventional and Islamic banks separately. It also uses both static and dynamic panel GMM estimation techniques to analyze the data.

Keywords

Acknowledgements

Special thanks go to the two anonymous referees as well as to the Editor in Chie (Prof. Dr. Wenfeng Wu) for the useful comments that significantly improved the paper.

Citation

Saif-Alyousfi, A.Y.H. (2021), "Do FDI inflows affect the off-balance sheet activities of banks in GCC economies?", China Finance Review International, Vol. 11 No. 2, pp. 201-229. https://doi.org/10.1108/CFRI-03-2020-0027

Publisher

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Emerald Publishing Limited

Copyright © 2020, Emerald Publishing Limited

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